* ECB bond buying expectations weighs on Bunds
* Lack of details limits selling pressures
* Spain to sell T-bills
By Kirsten Donovan
LONDON, Aug 22 (Reuters) - German government bonds fell on Tuesday as markets focused on the prospect of European Central Bank buying debt to contain Spanish borrowing costs but a lack of detail on how this might happen was expected to limit losses.
Traders cited a story in British newspaper The Daily Telegraph which said it could confirm earlier reports in German media that ECB experts were examining plans to effectively cap Spanish and Italian bond yields.
The ECB tried to quash speculation on Monday that it would target specific interest rate thresholds as part of any bond-buying programme.
"The leaks coming out at the moment are about quite significant things but the danger is there will be some quite onerous caveats," said Rabobank rate strategist Lyn Graham-Taylor.
"You don't really want to have a long position in Bunds because you could get absolutely smashed," he added, referring to traders' bets that the market will rise.
September Bund futures were 39 ticks lower at 141.61, having failed in early trading to rise back above 142.00, which has been acting as resistance in recent sessions.
"It's all speculation really. We're just trading within the range in Bunds and could well get back up to 142.00 again quite quickly," a trader said.
Ten-year Bund yields were 3 basis points higher at 1.54 percent, having tested the 1.60 percent upper limit of their three-month range in recent days but failing to break above it, suggesting selling pressure may ease in the absence of further developments in the debt crisis.
Spain will sell up to 4.5 billion euros of 12- and 18-month T-bills against a favourable backdrop after the country's debt rallied on Monday.
"We expect Spain to continue outperforming Italy, especially in the short end on continued expectations of...(the) EFSF (bailout fund) and ECB support," RBS strategists said in a note.
Spanish 10-year bond yields were 3 bps lower at 6.3 percent, with the Italian equivalent down a similar amount at 5.76 percent.
Thin market conditions have exaggerated price moves in recent weeks and left traders at mercy of news headlines.
September may prove to be decisive for markets as the German constitutional court will rule on ratification of the euro zone rescue fund on Sept. 12
Comments at the ECB's next policy meeting on Sept. 6 will also be closely scrutinised given the expectation of mass ECB bond buying has already halved two-year Spanish yields over the last month.
"You should start to see some more positions being put on ahead of the ECB meeting," Rabobank's Graham-Taylor said.